John Miller, President and Chief Executive Officer, stated, “Despite persistent challenges within the full-service dining environment, 2017 marked our seventh consecutive year of positive system same-store sales and our ninth consecutive year of net unit growth. Our highly franchised business model, coupled with our efforts to further differentiate Denny’s as a relevant and compelling brand, continues to generate revenue growth and strong cash flows. We remain committed to further elevating the guest experience through the focused execution of our brand revitalization strategies, leading to a consistent growth in same-store sales, an expanding global reach and value creation for our franchisees and shareholders.”

Fourth Quarter Results

Denny’s total operating revenue grew 4.5% to $135.5 million primarily due to an increase in company restaurant sales. Company restaurant sales were up 6.0% to $100.3 million due to a greater number of company restaurants compared to the prior year quarter and same-store sales growth. Franchise and license revenue grew 0.5% to $35.2 million compared to $35.0 million in the prior year quarter as increases in royalty revenue and initial fees from restaurant openings were partially offset by lower occupancy revenue due to scheduled lease terminations.

Company Restaurant Operating Margin* was $16.4 million, or 16.4% of company restaurant sales, compared to $16.6 million, or 17.5%, in the prior year quarter, due to an expected rise in product costs and minimum wages, partially offset by higher sales and favorable workers’ compensation experience. Franchise Operating Margin* was $25.4 million, or 72.1% of franchise and license revenue, compared to $25.2 million, or 72.1%, in the prior year quarter, as growth in royalty revenue and initial fees from restaurant openings were partially offset by other direct costs and a reduction in occupancy margin.

Total general and administrative expenses were to $15.9 million compared to $17.3 million in the prior year quarter primarily due to a reduction in professional fees and lower incentive compensation. Interest expense, net was $4.3 million versus $3.3 million in the prior year quarter. Denny’s ended the quarter with $289.2 million of total debt outstanding, including $259.0 million of borrowings under its revolving credit facility.

The provision for income taxes was $2.1 million, reflecting an effective tax rate of 13.8%. The enactment of The Tax Cuts and Jobs Act of 2017 during the fourth quarter required the Company to revalue its deferred tax assets and liabilities using the new 21% federal statutory income tax rate. Accordingly, the Company recorded a one-time non-cash benefit of $1.6 million to the provision for income taxes. Excluding this tax reform impact and a $1.8 million benefit associated with settlement of stock based compensation, the Company’s effective tax rate for the fourth quarter would have been approximately 35.6%. Due to the use of tax credit carryforwards, the Company paid only $0.8 million in cash taxes during the quarter.

Net Income was $13.1 million, or $0.19 per diluted share, compared to $11.3 million, or $0.15 per diluted share, in the prior year quarter. Adjusted Net Income per Share* grew 7.0% to $0.18 compared to the prior year quarter.

Adjusted Free Cash Flow* and Capital Allocation

Denny’s generated $15.3 million of Adjusted Free Cash Flow* in the quarter after investing $7.6 million in cash capital expenditures, including the acquisition of three franchised restaurants and the remodel of two company restaurants.

During the quarter, the Company allocated $16.5 million to share repurchases. As of December 27, 2017, the Company had approximately $196 million remaining in authorized share repurchases under its existing $200 million share repurchase authorization.

Business Outlook

Revenue Recognition Changes

In May 2014, the Financial Accounting Standards Board issued new guidance which clarifies the principles used to recognize revenue. This new guidance is effective for the Company in fiscal year 2018, and is not expected to impact the recognition of company restaurant sales or royalties from franchised restaurants. However, the adoption will have an impact on initial franchise fees, advertising arrangements with franchisees and certain other fees.

Initial franchise fees, which are currently recognized upon the opening of a franchise restaurant, will be deferred and recognized over the term of the underlying franchise agreement. Upon adoption, we expect to record deferred revenue of approximately $21 million as of December 28, 2017 (the first day of fiscal 2018) related to previously recognized initial franchise fees. The deferred revenue will be amortized over the remaining term of the related franchise agreements.

Additionally, advertising fees, including local co-operatives, and certain other fees have been historically recorded net of related franchise expenses. Upon adoption, we will record advertising and certain other fees and related expenses on a gross basis within the Consolidated Statements of Income. Advertising fees and certain other fees for 2017 were approximately $80 million and $3 million, respectively. While this change will materially impact the gross amount of reported franchise and license revenue and costs of franchise and license revenue, the impact will generally be an offsetting increase to both revenue and expense with no significant, if any, impact on operating income and net income.

The following full year 2018 estimates are based on management’s expectations at this time and include the impacts of recent tax reform and revenue recognition changes.

Same-store sales growth at company and domestic franchised restaurants between 0% and 2%.

40 to 50 new restaurant openings, with approximately flat net restaurant growth.

Total operating revenue between $634 and $642 million including franchise and license revenue between $222 and $225 million.

Company Restaurant Operating Margin* between 16% and 17% and Franchise Operating Margin* between 46% and 47%.

Total general and administrative expenses between $72 and $74 million.

Adjusted EBITDA* between $105 and $107 million.

Depreciation and amortization expense between $27 and $28 million.

Net interest expense between $18.5 and $19.5 million.

Effective income tax rate between 22% and 24% with cash taxes between $4 and $6 million.

Cash capital expenditures between $33 and $35 million.

Adjusted Free Cash Flow* between $48 and $50 million.

* Please refer to the historical reconciliation of Net Income to Adjusted Income Before Taxes, Adjusted EBITDA, Adjusted Free Cash Flow, Adjusted Net Income, and Adjusted Net Income per Share, as well as the reconciliation of Operating Income to non-GAAP financial measures included in the following tables. The Company is not able to reconcile the forward-looking non-GAAP estimates set forth above to their most directly comparable GAAP estimates without unreasonable efforts because it is unable to predict, forecast or determine the probable significance of the items impacting these estimates, including gains, losses and other charges, with a reasonable degree of accuracy. Accordingly, the most directly comparable forward-looking GAAP estimates are not provided.

Conference Call and Webcast Information

Denny’s will provide further commentary on the results for the fourth quarter ended December 27, 2017 on its quarterly investor conference call today, Tuesday, February 13, 2018 at 4:30 p.m. Eastern Time. Interested parties are invited to listen to a live broadcast of the conference call accessible through the investor relations section of Denny’s website at investor.dennys.com. A replay of the call may be accessed at the same location later in the day and will remain available for 30 days.

About Denny’s

Denny’s Corporation is the franchisor and operator of one of America’s largest franchised full-service restaurant chains, based on the number of restaurants. As of December 27, 2017, Denny’s had 1,735 franchised, licensed, and company restaurants around the world including 128 restaurants in Canada, Puerto Rico, Mexico, New Zealand, Honduras, the Philippines, Costa Rica, Dominican Republic, the United Arab Emirates, Guam, Curaçao, El Salvador, Guatemala, and the United Kingdom. For further information on Denny’s, including news releases, links to SEC filings, and other financial information, please visit the Denny’s investor relations website at investor.dennys.com.

The Company urges caution in considering its current trends and any outlook on earnings disclosed in this press release. In addition, certain matters discussed in this release may constitute forward-looking statements. These forward-looking statements, which reflect its best judgment based on factors currently known, are intended to speak only as of the date such statements are made and involve risks, uncertainties, and other factors that may cause the actual performance of Denny’s Corporation, its subsidiaries, and underlying restaurants to be materially different from the performance indicated or implied by such statements. Words such as “expect”, “anticipate”, “believe”, “intend”, “plan”, “hope”, and variations of such words and similar expressions are intended to identify such forward-looking statements. Except as may be required by law, the Company expressly disclaims any obligation to update these forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Factors that could cause actual performance to differ materially from the performance indicated by these forward-looking statements include, among others: competitive pressures from within the restaurant industry; the level of success of our operating initiatives and advertising and promotional efforts; adverse publicity; health concerns arising from food-related pandemics, outbreaks of flu viruses, such as avian flu, or other diseases; changes in business strategy or development plans; terms and availability of capital; regional weather conditions; overall changes in the general economy (including with regard to energy costs), particularly at the retail level; political environment (including acts of war and terrorism); and other factors from time to time set forth in the Company’s SEC reports and other filings, including but not limited to the discussion in Management’s Discussion and Analysis and the risks identified in Item 1A. Risk Factors contained in the Company’s Annual Report on Form 10-K for the year ended December 28, 2016 (and in the Company’s subsequent quarterly reports on Form 10-Q).

DENNY’S CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

12/27/17

12/28/16

Assets

Current assets

Cash and cash equivalents

$

4,983

$

2,592

Receivables

21,384

19,841

Assets held for sale

—

1,020

Other current assets

14,922

12,454

Total current assets

41,289

35,907

Property, net

139,856

133,102

Goodwill

38,269

35,233

Intangible assets, net

57,109

54,493

Deferred income taxes

16,945

17,683

Other noncurrent assets

30,314

29,733

Total assets

$

323,782

$

306,151

Liabilities

Current liabilities

Current maturities of capital lease obligations

$

3,168

$

3,285

Accounts payable

32,487

25,289

Other current liabilities

59,246

64,796

Total current liabilities

94,901

93,370

Long-term liabilities

Long-term debt, less current maturities

259,000

218,500

Capital lease obligations, less current maturities

27,054

23,806

Other

40,187

41,587

Total long-term liabilities

326,241

283,893

Total liabilities

421,142

377,263

Shareholders’ deficit

Common stock

1,077

1,071

Paid-in capital

594,166

577,951

Deficit

(334,661

)

(382,843

)

Accumulated other comprehensive loss, net of tax

(2,316

)

(1,407

)

Treasury stock

(355,626

)

(265,884

)

Total shareholders’ deficit

(97,360

)

(71,112

)

Total liabilities and shareholders’ deficit

$

323,782

$

306,151

Debt Balances

(In thousands)

12/27/17

12/28/16

Credit facility revolver due 2022

$

259,000

$

218,500

Capital leases

30,222

27,091

Total debt

$

289,222

$

245,591

DENNY’S CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Quarter Ended

(In thousands, except per share amounts)

12/27/17

12/28/16

Revenue:

Company restaurant sales

$

100,303

$

94,592

Franchise and license revenue

35,196

35,013

Total operating revenue

135,499

129,605

Costs of company restaurant sales

83,859

78,030

Costs of franchise and license revenue

9,811

9,768

General and administrative expenses

15,879

17,269

Depreciation and amortization

6,227

5,971

Operating (gains), losses and other charges, net

870

2,545

Total operating costs and expenses, net

116,646

113,583

Operating income

18,853

16,022

Interest expense, net

4,292

3,327

Other nonoperating income, net

(690

)

(474

)

Net income before income taxes

15,251

13,169

Provision for income taxes

2,104

1,895

Net income

$

13,147

$

11,274

Basic net income per share

$

0.20

$

0.16

Diluted net income per share

$

0.19

$

0.15

Basic weighted average shares outstanding

65,023

72,657

Diluted weighted average shares outstanding

67,463

74,650

Comprehensive income

$

14,154

$

19,675

General and Administrative Expenses

Quarter Ended

(In thousands)

12/27/17

12/28/16

Share-based compensation

$

1,995

$

1,985

Other general and administrative expenses

13,884

15,284

Total general and administrative expenses

$

15,879

$

17,269

DENNY’S CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Fiscal Year Ended

(In thousands, except per share amounts)

12/27/17

12/28/16

Revenue:

Company restaurant sales

$

390,352

$

367,310

Franchise and license revenue

138,817

139,638

Total operating revenue

529,169

506,948

Costs of company restaurant sales

324,713

302,096

Costs of franchise and license revenue

39,294

40,805

General and administrative expenses

66,415

67,960

Depreciation and amortization

23,720

22,178

Operating (gains), losses and other charges, net

4,329

26,910

Total operating costs and expenses, net

458,471

459,949

Operating income

70,698

46,999

Interest expense, net

15,640

12,232

Other nonoperating income, net

(1,743

)

(1,109

)

Net income before income taxes

56,801

35,876

Provision for income taxes

17,207

16,474

Net income

$

39,594

$

19,402

Basic net income per share

$

0.58

$

0.26

Diluted net income per share

$

0.56

$

0.25

Basic weighted average shares outstanding

68,077

75,325

Diluted weighted average shares outstanding

70,403

77,206

Comprehensive income

$

38,685

$

41,772

General and Administrative Expenses

Fiscal Year Ended

(In thousands)

12/27/17

12/28/16

Share-based compensation

$

8,541

$

7,610

Other general and administrative expenses

57,874

60,350

Total general and administrative expenses

$

66,415

$

67,960

DENNY’S CORPORATION

Reconciliation of Net (Loss) Income to Non-GAAP Financial Measures

(Unaudited)

The Company believes that, in addition to GAAP measures, certain other non-GAAP financial measures are appropriate indicators to assist in the evaluation of operating performance on a period-to-period basis. The Company uses Adjusted Income Before Taxes, Adjusted EBITDA, Adjusted Free Cash Flow and Adjusted Net Income internally as performance measures for planning purposes, including the preparation of annual operating budgets, and for compensation purposes, including bonuses for certain employees. Adjusted EBITDA is also used to evaluate the ability to service debt because the excluded charges do not have an impact on prospective debt servicing capability and these adjustments are contemplated in our credit facility for the computation of our debt covenant ratios. We define Adjusted Free Cash Flow for a given period as Adjusted EBITDA less the cash portion of interest expense net of interest income, capital expenditures, and cash taxes. Management believes that the presentation of Adjusted Free Cash Flow provides useful information to investors because it represents a liquidity measure used to evaluate, among other things, operating effectiveness and is used in decisions regarding the allocation of resources. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income or other financial performance measures prepared in accordance with U.S. generally accepted accounting principles.

Quarter Ended

Fiscal Year Ended

(In thousands, except per share amounts)

12/27/17

12/28/16

12/27/17

12/28/16

Net income

$

13,147

$

11,274

$

39,594

$

19,402

Provision for income taxes

2,104

1,895

17,207

16,474

Operating (gains), losses and other charges, net

870

2,545

4,329

26,910

Other nonoperating income, net

(690

)

(474

)

(1,743

)

(1,109

)

Share-based compensation

1,995

1,985

8,541

7,610

Adjusted Income Before Taxes

$

17,426

$

17,225

$

67,928

$

69,287

Interest expense, net

4,292

3,327

15,640

12,232

Depreciation and amortization

6,227

5,971

23,720

22,178

Cash payments for restructuring charges and exit costs

(177

)

(706

)

(1,660

)

(1,810

)

Cash payments for share-based compensation

—

—

(3,946

)

(2,529

)

Adjusted EBITDA

$

27,768

$

25,817

$

101,682

$

99,358

Cash interest expense, net

(4,030

)

(3,082

)

(14,566

)

(11,232

)

Cash paid for income taxes, net

(828

)

(1,872

)

(5,867

)

(3,012

)

Cash paid for capital expenditures

(7,563

)

(6,460

)

(31,164

)

(34,031

)

Adjusted Free Cash Flow

$

15,347

$

14,403

$

50,085

$

51,083

Quarter Ended

Fiscal Year Ended

(In thousands, except per share amounts)

12/27/17

12/28/16

12/27/17

12/28/16

Net income

$

13,147

$

11,274

$

39,594

$

19,402

Pension settlement loss

—

—

—

24,297

Losses (gains) on sales of assets and other, net

495

793

3,518

29

Impairment charges

326

1,098

326

1,098

Tax reform

(1,558

)

—

(1,558

)

—

Tax effect (1)

(249

)

(584

)

(1,165

)

(2,492

)

Adjusted Net Income (2)

$

12,161

$

12,581

$

40,715

$

42,334

Diluted weighted average shares outstanding

67,463

74,650

70,403

77,206

Diluted Net Income Per Share

$

0.19

$

0.15

$

0.56

$

0.25

Adjustments Per Share

$

(0.01

)

$

0.02

$

0.02

$

0.30

Adjusted Net Income Per Share (2)

$

0.18

$

0.17

$

0.58

$

0.55

(1

)

Tax adjustments for the three months and year ended December 27, 2017 are calculated using the Company’s year-to-date effective tax rate of 30.3%. Tax adjustments for the loss on pension termination for the three months and year ended December 28, 2016 are calculated using an effective tax rate of 8.8%. The remaining tax adjustments for the three months and year ended December 28, 2016 are calculated using the Company’s year-to-date effective tax rate of 30.9%, which excludes the impact of the pension termination.

(2

)

As required by ASU No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting” issued by the FASB, excess tax benefits or deficiencies are now recorded to the provision for income taxes in the consolidated statements of income, on a prospective basis, instead of additional paid-in capital in the consolidated balance sheets.

DENNY’S CORPORATIONReconciliation of Operating Income to Non-GAAP Financial Measures(Unaudited)

The Company believes that, in addition to GAAP measures, certain other non-GAAP financial measures are appropriate indicators to assist in the evaluation of restaurant-level operating efficiency and performance of ongoing restaurant-level operations. The Company uses Total Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin internally as performance measures for planning purposes, including the preparation of annual operating budgets, and these three non-GAAP measures are used to evaluate operating effectiveness.

We define Total Operating Margin as operating income excluding the following three items: general and administrative expenses, depreciation and amortization, and operating (gains), losses and other charges, net. We present Total Operating Margin as a percent of total operating revenue. We exclude general and administrative expenses, which includes primarily non-restaurant-level costs associated with support of company and franchise restaurants and other activities at our corporate office. We exclude depreciation and amortization expense, substantially all of which is related to company restaurant-level assets, because such expenses represent historical sunk costs which do not reflect current cash outlays for the restaurants. We exclude special items, included within operating (gains), losses and other charges, net, to provide investors with a clearer perspective of the Company’s ongoing operating performance and a more relevant comparison to prior period results.

Total Operating Margin is the total of Company Restaurant Operating Margin and Franchise Operating Margin. We define Company Restaurant Operating Margin as company restaurant sales less costs of company restaurant sales (which include product costs, company restaurant level payroll and benefits, occupancy costs, and other operating costs including utilities, repairs and maintenance, marketing and other expenses) and present it as a percent of company restaurant sales. We define Franchise Operating Margin as franchise and license revenue (which includes franchise royalties and other non-food and beverage revenue streams such as initial franchise fees and occupancy revenue) less costs of franchise and license revenue and present it as a percent of franchise and license revenue.

These non-GAAP financial measures provide a meaningful comparison between periods and enable investors to focus on the performance of restaurant-level operations by excluding revenues and costs unrelated to food and beverage sales in addition to corporate general and administrative expense, depreciation and amortization, and other gains and charges. However, each of these non-GAAP financial measures should be considered as a supplement to, not a substitute for, operating income, net income or other financial performance measures prepared in accordance with U.S. generally accepted accounting principles. Total Operating Margin, Company Restaurant Operating Margin and Franchise Operating Margin do not accrue directly to the benefit of shareholders because of the aforementioned excluded costs, and are not indicative of the overall results for the Company.

Quarter Ended

Fiscal Year Ended

(In thousands)

12/27/17

12/28/16

12/27/17

12/28/16

Operating income

$

18,853

$

16,022

$

70,698

$

46,999

General and administrative expenses

15,879

17,269

66,415

67,960

Depreciation and amortization

6,227

5,971

23,720

22,178

Operating (gains), losses and other charges, net

870

2,545

4,329

26,910

Total Operating Margin

$

41,829

$

41,807

$

165,162

$

164,047

Total Operating Margin consists of:

Company Restaurant Operating Margin (1)

$

16,444

$

16,562

$

65,639

$

65,214

Franchise Operating Margin (2)

25,385

25,245

99,523

98,833

Total Operating Margin

$

41,829

$

41,807

$

165,162

$

164,047

(1

)

Company Restaurant Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of franchise and license revenue; less franchise and license revenue.

(2

)

Franchise Operating Margin is calculated as operating income plus general and administrative expenses; depreciation and amortization; operating (gains), losses and other charges; and costs of company restaurant sales; less company restaurant sales.

DENNY’S CORPORATION

Operating Margins

(Unaudited)

Quarter Ended

(In thousands)

12/27/17

12/28/16

Company restaurant operations: (1)

Company restaurant sales

$

100,303

100.0

%

$

94,592

100.0

%

Costs of company restaurant sales:

Product costs

25,027

25.0

%

23,234

24.6

%

Payroll and benefits

39,816

39.7

%

38,275

40.5

%

Occupancy

5,511

5.5

%

4,836

5.1

%

Other operating costs:

Utilities

3,390

3.4

%

3,194

3.4

%

Repairs and maintenance

1,766

1.8

%

1,513

1.6

%

Marketing

3,333

3.3

%

2,989

3.2

%

Other

5,016

5.0

%

3,989

4.2

%

Total costs of company restaurant sales

$

83,859

83.6

%

$

78,030

82.5

%

Company restaurant operating margin (non-GAAP) (2)

$

16,444

16.4

%

$

16,562

17.5

%

Franchise operations: (3)

Franchise and license revenue:

Royalties

$

25,575

72.7

%

$

24,722

70.6

%

Initial fees

887

2.5

%

636

1.8

%

Occupancy revenue

8,734

24.8

%

9,655

27.6

%

Total franchise and license revenue

$

35,196

100.0

%

$

35,013

100.0

%

Costs of franchise and license revenue:

Occupancy costs

$

6,046

17.2

%

$

6,689

19.1

%

Other direct costs

3,765

10.7

%

3,079

8.8

%

Total costs of franchise and license revenue

$

9,811

27.9

%

$

9,768

27.9

%

Franchise operating margin (non-GAAP) (2)

$

25,385

72.1

%

$

25,245

72.1

%

Total operating revenue (4)

$

135,499

100.0

%

$

129,605

100.0

%

Total costs of operating revenue (4)

93,670

69.1

%

87,798

67.7

%

Total operating margin (non-GAAP) (4)(2)

$

41,829

30.9

%

$

41,807

32.3

%

Other operating expenses: (4)(2)

General and administrative expenses

$

15,879

11.7

%

$

17,269

13.3

%

Depreciation and amortization

6,227

4.6

%

5,971

4.6

%

Operating (gains), losses and other charges, net

870

0.6

%

2,545

2.0

%

Total other operating expenses

$

22,976

17.0

%

$

25,785

19.9

%

Operating income (4)

$

18,853

13.9

%

$

16,022

12.4

%

(1

)

As a percentage of company restaurant sales.

(2

)

Other operating expenses such as general and administrative expenses and depreciation and amortization relate to both company and franchise operations and are not allocated to costs of company restaurant sales and costs of franchise and license revenue. As such, operating margin is considered a non-GAAP financial measure. Operating margins should be considered as a supplement to, not as a substitute for, operating income, net income or other financial measures prepared in accordance with U.S. generally accepted accounting principles.

(3

)

As a percentage of franchise and license revenue.

(4

)

As a percentage of total operating revenue.

DENNY’S CORPORATION

Operating Margins

(Unaudited)

Fiscal Year Ended

(In thousands)

12/27/17

12/28/16

Company restaurant operations: (1)

Company restaurant sales

$

390,352

100.0

%

$

367,310

100.0

%

Costs of company restaurant sales:

Product costs

97,825

25.1

%

90,487

24.6

%

Payroll and benefits

153,037

39.2

%

142,823

38.9

%

Occupancy

20,802

5.3

%

19,557

5.3

%

Other operating costs:

Utilities

13,263

3.4

%

12,426

3.4

%

Repairs and maintenance

6,738

1.7

%

6,406

1.7

%

Marketing

14,315

3.7

%

13,112

3.6

%

Other

18,733

4.8

%

17,285

4.7

%

Total costs of company restaurant sales

$

324,713

83.2

%

$

302,096

82.2

%

Company restaurant operating margin (non-GAAP) (2)

$

65,639

16.8

%

$

65,214

17.8

%

Franchise operations: (3)

Franchise and license revenue:

Royalties

$

100,631

72.5

%

$

98,416

70.5

%

Initial fees

2,466

1.8

%

2,717

1.9

%

Occupancy revenue

35,720

25.7

%

38,505

27.6

%

Total franchise and license revenue

$

138,817

100.0

%

$

139,638

100.0

%

Costs of franchise and license revenue:

Occupancy costs

$

25,466

18.3

%

$

28,062

20.1

%

Other direct costs

13,828

10.0

%

12,743

9.1

%

Total costs of franchise and license revenue

$

39,294

28.3

%

$

40,805

29.2

%

Franchise operating margin (non-GAAP) (2)

$

99,523

71.7

%

$

98,833

70.8

%

Total operating revenue (4)

$

529,169

100.0

%

$

506,948

100.0

%

Total costs of operating revenue (4)

364,007

68.8

%

342,901

67.6

%

Total operating margin (non-GAAP) (4)(2)

$

165,162

31.2

%

$

164,047

32.4

%

Other operating expenses: (4)(2)

General and administrative expenses

$

66,415

12.6

%

$

67,960

13.4

%

Depreciation and amortization

23,720

4.5

%

22,178

4.4

%

Operating gains, losses and other charges, net

4,329

0.8

%

26,910

5.3

%

Total other operating expenses

$

94,464

17.9

%

$

117,048

23.1

%

Operating income (4)

$

70,698

13.4

%

$

46,999

9.3

%

(1

)

As a percentage of company restaurant sales.

(2

)

Other operating expenses such as general and administrative expenses and depreciation and amortization relate to both company and franchise operations and are not allocated to costs of company restaurant sales and costs of franchise and license revenue. As such, operating margin is considered a non-GAAP financial measure. Operating margins should be considered as a supplement to, not as a substitute for, operating income, net income or other financial measures prepared in accordance with U.S. generally accepted accounting principles.